Wednesday, October 2, 2013

Advice on How to Become a Research Analyst by Jason Voss, CFA


Advice on How to Become a Research Analyst


I am frequently asked, “What can I do to improve my chances of getting hired as a research analyst?” Beyond the obvious — become a CFA charterholder — there are a number of other steps that aspiring analysts may take in my opinion.
Making the Intangible Tangible
What an aspiring analyst has to offer to an employer is largely abstract- and creative-thinking skills. These skills are intangible and difficult for recruiters to assess. This is one reason why firms in finance tend to recruit from the same schools decade after decade: rigor of the curriculum and reliably high quality candidates. This is also why those without experience in the investment industry find it hard to get hired for research analyst positions. That is, in the absence of other evidence, firms hire what they think they can depend on — that is, what is tangible: your education and your experience.
But do not despair if you have not gone to your country’s top educational institution or if you have no experience! I went to the University of Colorado (not a top school for finance recruiters) and had very little experience when I was hired as a research analyst at one of the United States’ largest and best-known money managers.
What employers really want is for your intangible skills to be made tangible. This realization empowers you tremendously, because with this framework, you can focus on providing concrete evidence that you have the skills necessary for being an effective analyst. When I began my career I created a personal website that included: examples of my own personal research analysis on companies; book reviews of economics, finance, and investment texts that demonstrated my ability to think critically about information; and an extended version of my CV (i.e., greater than the orthodox one page maximum), so human resources departments could see if I had what it took to be a research analyst.
By engaging in these activities it will also sharpen your own skill set. For example, when I created my own research reports — which I highly encourage you to do — I used only primary data sources, such as company annual reports. I also did all of my own calculations for things like future gross domestic product; the future shape of the yield curve; and the cost of capital.
Recognize that your opinion matters. Companies will be hiring you for your opinion as much as for your skill set. In other words, they hire you with the expectation that you will take responsibility for your choices. So, if you choose to make your intangible skills tangible by creating your own research reports then you must track how your investment recommendations do by noting the prices of assets on the day that you recommended them for purchase and then track how they perform over time. You must be honest with yourself, otherwise you won’t learn anything. This is more for you than for your future employer. (Though it certainly wouldn’t look good for you to get caught fudging the numbers in even a theoretical exercise.) Markets provide a valuable feedback mechanism for assessing your skill set. The beautiful and terrifying thing about investment management is that the results of your performance are measured objectively. You either did well for people or you did not. So, if you are not doing very well, then you need to identify where your analysis broke down, and then strive to improve.
I have a friend who took a similar approach as me to getting work. He sent his research reports to investment firms every single month for two years and eventually got a job interview. By doing this process he taught himself to be an analyst.
Look for a Mentor
Across the globe, CFA Institute has hundreds of local societies, which are made up of many generous individuals, many of whom may be willing to guide your career track. If that does not appeal, then contact money managers whose process is in alignment with your own. You may be intimidated, but the worst they can say is “no.” In any case, any possible anxiety you experience in approaching investment heroes is good practice for the anxiety you may experience in approaching management of prospective businesses, some of whom may include the likes of Rupert Murdoch or Li Ka-Shing.
Analysis Is Probably Not What You Think It Is
Most analysts, the aspiring and the experienced, think that investing is about facts, models, mathematics, and analysis. Yet, as I discuss extensively in my own book, The Intuitive Investor, there is no such thing as a future fact. Facts, by definition, are things that occurred in the past. Yet investing results unfold in the future. What this means is that investing is as much a creative and intuitive process as it is an analytical process. To be a well-rounded and experienced candidate you need to be able to think in a balanced fashion — that is, both anaytically and creatively. Therefore, engage in activities that enhance your creativity, too. For me, I am an active meditator, as well as an artist. Your success as an analyst will depend on your ability to synthesize information and to see things no one else is seeing. After all, by definition, if you want to earn returns that no one else is earning, you have to do things that no one else is doing.
Stock Your Mental Toolkit
Another tip is to read, read, read, read. Read investment texts. Read texts on geopolitics. Read texts on mergers and acquisitions. Read economic texts. Read anything that sparks your curiosity, even fiction (potent advice from CFA charterholder, Tom Brakke, CFA). And most of all, read the news and from many sources every single day and begin to develop an opinion about the news and how it affects different countries, industries, businesses, and individuals. The most important skill for any investor is: understanding information. He who understands information the best does better, and he who understands information the best and acts decisively on that information wins the day. When I was an aspiring analyst if I encountered a piece of news I did not understand, I would read not just the article in question but also an entire academic paper or book on the subject. I did this day after day, month after month, and year after year until my mental mosaic became large. In other words, let your ignorance guide you. What you do not know and understand should guide what you try and learn next.
Introspection
Spend some time figuring out who you are as an analyst. This is critically important. Why? If your natural strengths as a thinker make you a good trader, then you will be very frustrated working at a deep value, long-term focused money management firm. Likewise, if your character is more in line with a long-term, deliberate process, then you will likely be frustrated at a high-frequency trading shop. You want to know yourself so that you can make an informed decision about where you want to work; about what type of analysis works in accord with your mind; and about where to spend huge parts of your life.
Furthermore, your introspective process will allow you to take an inventory of your innate strengths and weaknesses — and we all have both. You want to develop skills that accentuate your existing talents and skills that compensate for your shortcomings, too.
Be patient
Expect this entire process to take a lot of time. From the time I first had the idea to become a research analyst to the time I got hired doing the work I wanted to do, it took me five years. For some people it is a much shorter process. But then, having done all of the work I described above, once hired I was promoted to portfolio manager in two short years and was fortunate enough (and maybe skilled enough) to have retired at age 35.
Best wishes for success!

Update: Many of you in the comments section have requested a link to an example research report. When I began my career I got a copy of a brokerage report from my local market and then used it as the basis for my own report. I am going to point those interested in what a research report looks like to Zacks.com.
Note: CFA Institute does not necessarily endorse Zacks. If you sign up for a free 30-day trial at Zacks, they will allow you access to additional information.

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